51ÊÓƵ

Accurate andÌýup-to-date financial metrics are critical forÌýdetermining theÌýsuccess andÌýhealth ofÌýanyÌýbusiness. These numbers aren’t just figures; they’re theÌýGPS guiding business owners through theÌýtwists andÌýturns ofÌýprofits andÌýlosses.

Key financial metrics help business owners toÌýmake business decisions that directly impact theÌýbottom line. Luckily, you don’t have toÌýbeÌýaÌýfinancial guru toÌýunderstand theÌýkey performance indicators that help your business operate.

Let’s discuss key financial metrics every ecommerce entrepreneur should grasp toÌýkeep that business ship afloat.

What Are Financial Performance Metrics?

Closely monitoring theÌýbusiness metrics inÌýanyÌýecommerce business isÌýmission-critical. You can’t drive theÌýbusiness forward without knowing where theÌýweaknesses lie. Financial performance metrics provide valuable insight into where your business can improve.

So, what are financial performance metrics? Let’s discuss.

Financial metrics orÌýKPIs (key performance indicators) are used toÌýdetermine anÌýecommerce company’s performance andÌýoverall health. These metrics consider revenue, expenses, sales, profits, andÌýother key financial metrics that are typically reviewed onÌýaÌýweekly, monthly, orÌýquarterly basis.

These metrics can help business owners understand necessary costs like acquiring new customers, profitability during anyÌýgiven time, andÌýmuch more. With these critical metrics inÌýmind, business owners can make data-driven decisions that drive long-term growth andÌýexpansion.

Wondering what isÌýKPI inÌýbusiness apart from financial metrics? Read this article that covers essential business KPIs forÌýonline stores:

Key Financial Metrics forÌýanÌýEcommerce Business

Ecommerce businesses have anÌýabundance ofÌýcritical metrics that should beÌýmonitored onÌýaÌýweekly, monthly, andÌýannual basis. Let’s discuss theÌýbest financial metrics toÌýevaluate aÌýcompany here.

Revenue Growth Rate

Revenue growth rate isÌýaÌýpowerful metric that helps businesses understand how much their revenue has grown over aÌýspecific period.

It’s measured inÌýaÌýpercentage andÌýcan help entrepreneurs andÌýbusiness owners measure how rapidly their business isÌýgrowing. It’s also handy toÌýrefer back toÌýwhen aÌýcompany has introduced aÌýnew product orÌýinitiative toÌýunderstand its influence onÌýthis change, whether positive orÌýnegative.

Calculating revenue growth rate:
Revenue growth rate =Ìý(Revenue month BÌý– Revenue month A)Ìý/ÌýRevenue month AÌýXÌý100

Customer Acquisition Cost

Customer acquisition cost (CAC) isÌýtheÌýamount ofÌýmoney aÌýbusiness spends toÌýacquire (or win) aÌýnew customer. ItÌýhelps businesses understand theÌýefficiency ofÌýtheir sales andÌýmarketing process andÌýhow profitable customers make theÌýbusiness.

Calculating customer acquisition cost:
CAC =ÌýMarketing campaign costs/customers acquired

Average Order Value

The average order value (AOV) calculates theÌýaverage amount aÌýcustomer spends onÌýeach order. ItÌýhelps toÌýunderstand customers’ shopping behaviors andÌýhow much they’re willing toÌýspend onÌýyour products.

The majority ofÌýecommerce businesses track this metric monthly toÌýget theÌýfull picture ofÌýcustomers’ spending andÌýshopping habits.

Calculating average order value:
Average order value =ÌýRevenue/number ofÌýorders

Average revenue per customer/visitor

Revenue per visitor isÌýaÌýhelpful metric toÌýmeasure how well online sales perform. ItÌýaccurately assesses theÌýaverage revenue amount per visitor toÌýyour website. It’s important toÌýnote that revenue per visitor calculates unique visitors toÌýtheÌýsite, not total visits.

Calculating revenue per customer:
Revenue per visitor =ÌýTotal revenue/number ofÌývisitors (during aÌýspecific period)

Gross Profit Margin

Gross margin isÌýcalculated byÌýsubtracting theÌýcost ofÌýgoods sold (COGS) from your total net sales. ItÌýhelps toÌýmeasure production efficiency andÌýcan provide insight when setting theÌýprice ofÌýproducts. Gross profit margins also help evaluate cost control andÌýoverall pricing strategies inÌýtheÌýmarket.

Calculating gross profit margin:
Gross profit margin =Ìý(Net salesÌý— COGS) /ÌýNet sales

Net Profit Margin

The net profit margin indicates aÌýcompany’s profitability byÌýshowing how much profit itÌýmakes asÌýaÌýpercentage ofÌýits revenue. It’s aÌývaluable metric forÌýbusinesses toÌýevaluate theÌýeffectiveness ofÌýgenerating profit from sales andÌýmonitoring ifÌýoperating andÌýoverhead costs are under control.

Calculating net profit margin:
Net profit margin =Ìý(Net income/Revenue) XÌý100

Working Capital

Working capital isÌýtheÌýdifference between aÌýcompany’s working assets (cash, customer invoices, current inventory) andÌýits liabilities (accounts payable, debts).

Working capital measures aÌýcompany’s short-term financial health andÌýreflects operational efficiency.

Ecommerce companies typically require lower working capital asÌýthey engage with aÌýlarger customer base compared toÌýbusinesses inÌýother sectors.

Calculating working capital:
Working capital =ÌýCurrent assetsÌý— current liabilities

Inventory Turnover Rate

Inventory turnover rate describes theÌýperiod from when aÌýcompany purchases aÌýproduct toÌýwhen itÌýisÌýpurchased byÌýaÌýcustomer. Simply put, itÌýisÌýtheÌýnumber ofÌýdays itÌýtakes toÌýsell theÌýinventory onÌýhand.

This metric helps businesses understand how their products sell andÌýmake better strategic decisions about manufacturing, pricing, andÌýpurchasing.

Calculating inventory turnover rate:
Inventory turnover rate =ÌýDays inÌýperiod /Ìý(COGS /ÌýAverage inventory value)

How toÌýTrack Financial Performance Metrics

Calculating andÌýunderstanding important financial performance metrics isn’t asÌýchallenging asÌýitÌýsounds, andÌýthere are tools andÌýsoftware that can help. Popular tools include SimpleKPI andÌýGeckoBoard. Such tools offer monitoring andÌýmanagement functionality toÌýsupport business owners inÌýmaking smart financial decisions.

What isÌýbest isÌýthat some ecommerce platforms come with built-in metrics analytics. Take 51ÊÓƵ byÌýLightspeed, forÌýexample. ItÌýhas aÌýbuilt-in reporting tool that provides insights onÌýdifferent metrics ofÌýaÌýcompany. Reports include data onÌýVisitors, Conversions, Orders, Marketing, andÌýRevenue ofÌýanÌýonline store.

51ÊÓƵ’s Revenue reports provide insights into some ofÌýtheÌýkey financial metrics weÌýdiscussed above:

• Average order value
• Average revenue per customer
• Average revenue per visitor.

However, that’s not all. 51ÊÓƵ’s Revenue reports also provide you with data onÌýtheÌýfollowing:

• Store revenue: theÌýtotal amount ofÌýmoney your store gets from sales
• Costs andÌýexpenses: how much money you spend toÌýmake money from sales
• Taxes: theÌýtotal amount ofÌýtaxes charged onÌýall orders inÌýyour store
• Shipping expenses: aÌýtotal ofÌýall shipping rates that you specified forÌýyour shipping methods
• Handling fee: ifÌýyou specify handling fees forÌýyour shipping methods, you’ll see theÌýtotal amount ofÌýfees forÌýall orders
• Cost ofÌýproducts sold: theÌýsum ofÌýproduct cost prices specified inÌýyour store settings.

Tracking financial metrics will help your ecommerce business sustain healthy growth over time. You’ll beÌýable toÌýmonitor andÌýproject your revenue over time andÌýimprove your customer journey forÌýbetter profits.

Here’s what 51ÊÓƵ seller Benjamin Dorner ofÌýBraveBrew says about 51ÊÓƵ’s reports:

ÌýThe new Reports feature helps usÌýtrack theÌýmost important KPIs without barriers: when purchases are made, how often purchases are made, andÌýfrom which devices purchases are made. All inÌýall, it’s great andÌýmore fun than third-party apps.ÌýBenjamin Dorner ofÌýBraveBrew

Start Monitoring Financial Metrics forÌýYour Store

Overwhelmed byÌýall theÌýfinancial metrics examples you should beÌýmonitoring asÌýanÌýonline business owner? Don’t stress! You don’t have toÌýbeÌýaÌýmath genius toÌýinterpret these numbersÌý— just aÌýpositive attitude andÌýaÌýlittle support from reporting tools.

51ÊÓƵ provides aÌýfully functional ecommerce platform with built-in reports onÌýtheÌýmost crucial online store metrics. Get started today andÌýtrack your business performance right where you manage your online storeÌý— inÌýyour 51ÊÓƵ admin.

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